Taxpayers to plug £100m hole in MEP pension fund created by financial crisis and fraud

Taxpayers could be asked to plug a £106 million black hole in a fund providing a second pension for MEPs, to make up for cash lost to fraudulent investment schemes and during the financial crisis.

By Bruno Waterfield in Brussels

9:58AM BST 16 Apr 2009

The second pension perk, for 478 out of 785 MEPs, already costs taxpayers over £12 million a year, an annual bill that will increase by up to £10.6 million to meet the shortfall.

The Daily Telegraph has also learned that a number of emergency reforms to the pension scheme, aimed at stemming the huge losses, will be opposed by a powerful group of MEPs who both benefit from and administer the fund.

According to senior sources, the European Parliament's authorities are also expected to bypass a decision by its budget control committee not to bail out the scheme in order to "honour legal requirements".

The issue is expected to come to a head during a Strasbourg debate on the parliament's budget next Tuesday.

Up to half the funds loses are said to stem form investments, via a Luxembourg fund, in schemes linked to Bernard Madoff, the disgraced American financier.

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Chris Davies, a British Liberal Democrat MEP who benefits from the scheme, has opposed the bailout.

"Our constituents are being told by their own pension funds to expect a lot less than they had once been promised," he said.

"MEPs must take the same kind of hit as the people we represent. It would be shameful to allow the use of public money to fill the hole created by the recession."

The parliament's Additional Voluntary Pension Scheme is a controversial perk that comes on top of national pensions, which for British MEPs is set at the same level as Westminster MPs.

Two thirds of the optional extra pension is paid for in supplementary payments by the taxpayer. MEPs pay £1052(1,194 euros) a month into the scheme. That cash is added to by a publicly funded payment of £2104 (2388 euros).

MEPs, on reaching retirement age, can expect an extra pension benefit, on top of generous national schemes, worth an annual £14,736 for every five year term of office.

An MEP benefiting from the perk can net a combined pension of over £40,000 after just 10 years in office.

Officials have moved to address the pension fund deficit, which leapt from £26.5 million (30 million euros) to £106 million (120 million euros) last year, by seeking to raise the age that MEPs can benefit from 60 to 63, as well as ending early retirement at 50 and lump sum payments.

But an internal letter written by the fund's chairman, the former Conservative MEP Richard Balfe, which was seen by The Daily Telegraph, has warned that the reforms are "not permissible under European law".

"These changes go against the 'vested rights' and the 'general principles of proportionality and the protection of legitimate expectations' of the members of the scheme'," he wrote.

The parliament's management of the supplementary pension fund has been repeatedly been criticised since 1999 by the European Court of Auditors for failing to have "clear rules to define the liabilities and responsibilities" of the scheme.

Sources have also predicted that an April 22 vote on the European Union assembly's 2007 budget will be used to overturn a decision not to bailout the pension fund taken by the parliament's budget control committee.

"Someone will try to delete this in votes next Wednesday and will probably win," said an MEP on the committee.

"This will be the opportunity for MEPs to say that their pension fund should have to manage the market fluctuations in the same way as every other pension fund."